GROUNDFLOOR is an American real estate lending marketplace. It was the first real estate crowdfunding company to achieve SEC qualification utilizing Regulation A+ since the regulation became operable through the JOBS Act. GROUNDFLOOR was purposely built to serve self-directed investors instead of institutional ones
You’re both a director and one of the co-founders of GROUNDFLOOR. What was the inspiration behind launching this crowdfunding platform?
My co-founder, Brian Dally, had years of experience to make telecom services more accessible to everyday individuals. Meanwhile I had a lot of experience in the securities and regulatory industries. We wanted to combine our respective strengths in a way that opened up high yield investment opportunities for everyone, not just the 1 percent. We eventually started with single-family residential housing because most people are familiar with this kind of asset from being homeowners themselves.
When the idea was conceived, we had no idea if there would be a market for it. We needed to first find an accessible regulatory framework that would allow them to test the business concept. We discovered the Invest Georgia Exemption (IGE), created in 2011 to help small businesses access capital. Being an intrastate offering rule, it was only available for Georgia companies, so both of us picked up and moved to Atlanta to launch GROUNDFLOOR. Because of IGE, we were able to fund $2 million in loans in Georgia, clearly demonstrating the demand for GROUNDFLOOR’s platform.
Over time, GROUNDFLOOR has grown considerably and is now open to investors in all 50 states.
Can you explain how GROUNDFLOOR connects investors with real estate developers?
We are focused on providing retail investors with high yield investment opportunities. A real estate borrower, someone who develops real estate for a living, secures a loan through GROUNDFLOOR rather than a traditional bank or a hard money lender to finance a residential real estate project. That borrower submits a loan application, and we vet the individual and the project to determine if we should originate a loan. Our underwriting is based on past experiences, amount of skin in the game and many other factors. If approved, the loan is assigned a loan Grade of A through G and a corresponding rate where Grade A loans are the least risky, with the lowest rate of return and Grade G loans are most risky, with the highest rate of return.
We have filed an offering with the Securities Exchange Commission (SEC) through which we sell securities. The proceeds of these securities are used to fund the loans we originate. The performance of these securities and corresponding rate of return is tied to the underlying loan. Investors can choose which securities, and therefore, which underlying loans, they wish to invest in.
Investors can choose to invest up to $10 increments to fund the loan. Once a loan is fully funded, the borrower draws money according to a draw schedule, and completes the new construction, renovation or rehab project. The property is then typically listed for sale. When the project sells or is refinanced, which is usually 6-12 months from the time the investor invested, the loan is repaid. The investor’s principal investment, plus all accrued interest, is deposited into the investor’s GROUNDFLOOR Investor Account. The cash balance in an individual’s GROUNDFLOOR Investor Account can be withdrawn or reinvested in other projects.
Are there any types of restrictions or quality controls in place to ensure that real estate developers can repay the loans?
When the borrower submits the loan application, our underwriting team works closely to vet the projects and the borrower. We also factor in the local real estate market. We don’t lend in markets we don’t like. When a loan is originated, we stay in regular contact with the borrower to ensure that the project is meeting deadlines, and we share regular updates with investors. Draws are not given out if the borrower is not making sufficient progress or has deviated from plan. If we think there could be delays or the borrower violates terms of the agreement, we can decide to step in and proactively put the loan in default, which can result in a stronger outcome for the investor because we pass through penalty interest. Most GROUNDFLOOR loans are first lien position, so the loan is backed by a physical asset, which is the land and structure.
What are some of the types of returns that can be expected by investors?
For the past six years, participants in GROUNDFLOOR real estate loans have earned annualized returns averaging 10 to 12 percent in a 6 to 12 month timeframe.
Are all investments currently in the United States? Is there a preference for certain cities or states? If yes, could you describe these.
While anyone in the country can invest in GROUNDFLOOR with only $10, the company focuses its lending in 30 states.
You were an early advocate for the JOBS Act, were you happy with how the JOBS Act was written? Was there anything that should have been left out?
I am generally happy with how the act turned out. The different provisions are designed to help companies of different sizes, and each provides value for companies in different situations. I don’t think any particular provision should have been left out.
What would you like to see changed in a future version of the JOBS Act?
We have seen Reg. A be used heavily by real estate issuances. I think there is value beyond this use case, particularly for mid-sized privately held companies that want to access public market capital. The cap for Regulation A will soon change to $75M, which will be more appealing to companies of that size. I think we could see some novel offerings in that space.
Is there anything else that you would like to share about GROUNDFLOOR?
There is no other company that offers what GROUNDFLOOR does for individual investors and borrowers. We’ve created a new category and offer completely new products.
Why hasn’t anyone copied us? One reason is because regulatory innovation. Providing investments directly tied to this type of high quality, high yield real estate credit is not something that has been done for the retail investor. GROUNDFLOOR was the very first company qualified by the Securities & Exchange Commission to offer this type of investment via Reg A for non-accredited and accredited investors alike, and because of the enormous amount of infrastructure we put into place, we can continue to iterate on our product where others cannot.
I really enjoyed learning about your company, readers and/or investors who wishes to learn more may visit GROUNDFLOOR.
SeedInvest Tackles Economic Inequality with ‘BlackCapital’
BlackCapital’s goal is to facilitate economic equality among black communities across the United States. It was launched in collaboration with Kevin Johnson – a former NBA All-Star, and Mayor of Sacramento.
Tackling economic inequality is no small feat. Recognizing this, SeedInvest has taken a structured approach towards its goal.
In order to positively affect the greatest number of people, SeedInvest’s BlackCapital has been structured as a two-pronged system; each of which will provide participants with access to fully-vetted, high potential start-ups. Investors can choose to invest in companies that are lead by black founders. At the time of writing, SeedInvest has three companies with black founders that are fundraising.
1. Black Capital Access
With an investment minimum of $1000, this program allows investors of any ilk the ability to create a portfolio comprised of up to 25 different start-ups raising capital through SeedInvest.
2. Black Capital Fund
With an investment minimum of $50,000, this program is geared specifically towards accredited investors. Much like BlackCapital Access, this fund will provide its participants with access to many vetted investment opportunities, along with access to a bevy of features within the SeedInvest platform.
SeedInvest notes that, until now, early-stage venture capitalism has only been accessible by roughly 2% of the population. Furthermore, this form of investing has been heartily outperforming the S&P 500 over the past two decades. By creating and promoting BlackCapital Access/Fund, with the help of Kevin Johnson, SeedInvest is hoping to increase that 2% as much as possible.
It should be interesting to see how SeedInvest continues to develop BlackCapital and if the BlackCapital initiative does in fact benefit the black community.
Given that we are currently midway through 2020, it is sad to say that many marginalized communities throughout the world still exist. Currently, in North America, black communities are in the spotlight due to a myriad of issues. SeedInvest has taken note, and it is beginning work to contribute towards forward progress.
At the Helm
While SeedInvest may be facilitating BlackCapital, the project’s creation was made possible through collaboration with Kevin Johnson. If this name sounds familiar, his past accomplishments may explain why.
- 3x NBA All-Star with the Sacramento Kings
- Mayor of Sacramento from 2008-2016
- CEO of Seven Ventures
Throughout his career, Kevin Johnson has experienced great success in many of his endeavours. For instance, along the way he has become known for developing programs which help marginalized communities gain access to better educational and economic opportunities. With this being the case, his participation in an initiative such as BlackCapital, is no surprise.
While BlackCapital is very new, we hope to see continued growth in supporting the black community by empowering black founders and black investors. We also hope to see continued growth in supporting other marginalized members of the community.
Since the ‘Jumpstart Our Business Act‘ was passed in 2012, crowdfunding has been steadily increasing in popularity. This popularity has led to the rise of various companies like SeedInvest, as they look to establish themselves as market leaders. Investing through such means can provide savvy investors with fantastic opportunities, by gaining access to companies at an early stage.
While the potential for great returns is there, it is vital to note that early stage investing is a high-risk endeavour. SeedInvest echoes this sentiment, by stating, “Only those prepared for extreme volatility, a lack of liquidity, and the risk of losing their entire investment should invest in early-stage startup investments.”
Founded in 2011, SeedInvest is a crowdfunding platform, based out of New York, New York. Through their platform, SeedInvest provides investors access to pre-vetted opportunities from promising startups.
CEO, Ryan Feit, currently oversees company operations.
In Other News
Since COVID-19 began wreaking havoc on the world as we know it, various crowdfunding platforms have noted an increase in investor activity – with SeedInvest being among these.
Accordingly, we took a brief look at these events, and how they led to a record setting quarter by SeedInvest. To learn more, click HERE.
SeedInvest Gaining Momentum
In a recently shared update, SeedInvest elaborated on a notable uptick in platform participation throughout 2020.
Best quarter on company record? Check. Investment volumes reaching new highs? Check. Massive investor signup, dwarfing multiple previous years combined? Check.
With people adjusting to the new world, it is clear that they are recognizing the benefits and efficiency afforded through crowdfunding. April, alone, saw roughly 25,000 new investor signups on the SeedInvest platform.
In their post, SeedInvest CEO, Ryan Feit, elaborated on how their platform differs from traditional means of raising capital.
“Unlike venture capital firms, online fundraising platforms are perfectly situated to help startups in the current, post-COVID-19 world we are in. Online fundraising platforms are not dependent on capital from a handful of pensions and endowments, but rather a large, diverse network of investors (SeedInvest has had over 350,000 investors register for example).”
“…while the traditional venture capital investment process is highly dependent on in-person meetings (which is next to impossible in the current environment), the online fundraising and investing process is inherently digitally native. Furthermore, there are a number of pending improvements to U.S. securities laws (the most significant changes since the JOBS Act was signed into law), which will turbocharge online fundraising for entrepreneurs and investors alike.”
SeedInvest is not the only platform to see a recent boost in usage. Rival crowdfunding platform, StartEngine, has seen a similar uptick.
While this positive turn may be due, mainly, to venture capitalism drying up, due to the ongoing pandemic, there is no doubt that the SEC has also played a role.
While the SEC is often viewed as a regulatory body that simply punishes those breaking the rules, they also have a direct hand in crafting friendly environments for growth. Recognizing the potential harm of COVID, they recently relaxed regulations surrounding crowdfunding. The following are a few examples of this:
- Financial statement exemptions
- Broader eligibility
- Easier ‘early closing’
While no official announcements have been made, it has long been suspected that SeedInvest owner, Circle, intends to sell the crowdfunding platform.
Reports of a possible sale surfaced after Circle began streamlining their operation in 2019. Their efforts saw the sale of popular exchange, Poloniex, as well as the departure of multiple ‘C-level’ employees.
With the recent growth seen at SeedInvest, Circle has every reason to be happy. Either they keep SeedInvest under their umbrella, and benefit from their successes, or they sell the platform, and benefit from an increased market value.
Founded in 2011, SeedInvest is a crowdfunding platform, which operates out of New York. Above all, SeedInvest acts as a bridging platform, connecting vetted investment opportunities with eligible investors.
CEO, Ryan Feit, currently oversees company operations.
In Others News
For those interested in learning more about what Crowdfunding is, and how it can transform the way we invest, make sure to peruse the following article.
Andrew Adcock, CEO of Crowd for Angels – Interview Series
Andrew is the Chief Executive Officer at Crowd for Angels an equity crowdfunding platform. He often attends and speaks at events on Crowdfunding, Alternative Finance and Investment. Previously, he worked at NinetyTen, a web application developer and provider of Private Social Networks, whose clients included Nokia, Channel 4 and Shop Direct
You were one of the original Co-Founders of Crowd for Angels. Can you discuss the inspiration behind launching this business?
I was indeed one of the Founding team at Crowd for Angels, but the inspiration for launching the company comes from our Director Tony de Nazareth, who combined his decades of financial knowledge with the ‘social media’ approach. This was to get the community involved when funding and supporting a business, thereby creating brand advocates that not only financially supported the aspirations of a company but also became a voice and customer of the company.
How much do you involve yourself in the pitch decks and packaging the deals that are found on Crowd for Angels?
I am involved in most companies that seek to list on Crowd for Angels. I take a genuine fascination in the lives of start-ups and companies looking to expand. Each has its own story and passion, which I am enthused by. Having raised funds for my own company and invested in many others, I hope to provide insight for the company.
What type of due diligence is performed on the companies that are listed?
A lot! Crowd for Angels breaks due diligence down into 3 key areas, firstly, we conduct factual checks such as KYC, AML, PEP, Credit Checks on the directors, reviewing accounts produced by the company and verifying facts stated on their pitch. Secondly, we conduct market checks, for instance, is the product available and as described, is there an addressable market, is the valuation reasonable, what legal challenges the company might face and is it ethical. The final check is one of sanity, which is not only tested by Crowd for Angels, but also by our Angels, who will ask the company their own questions.
What are some of the main reasons behind companies being turned down for listing on the platform?
There can be a number of reasons but a few we find most common are as follows:
- The valuation is simply too high in comparison to the companies position
- The company does not provide documentation (business plan, management accounts, incorporation documents)
- The product is too early-stage or not yet developed
- The directors have no ‘Skin in the Game’
What are the biggest benefits of equity crowdfunding?
I personally believe the biggest benefit is the ability to create brand advocates, people who support your business financially and become active customers, drawing in others to check out your brand, whether that is through word of mouth or social media.
Could you give us a success story of a company that raised funds on the Crowd for Angels platform?
One of my favourites is a company called CNPPS. A young entrepreneur, who was studying engineering at university at the time had created a permeable pavement solution that used recycled aggregate. Now that might not sound as fascinating as an app, but our world is covered in roads and pavements. His solution, used 100% recycled aggregate and was carbon negative, furthermore, it allowed water to pass through. Working with the entrepreneur we were able to raise £100,000 for a phase of testing that has now led on to a commercial contract and further funding for the company.
What made it interesting was the ethical approach the company had took to change an old industry, the tenacity the entrepreneur showed never giving up and that a business can truly be grown from the ground up, out of university none-the-less. So far in a 2 year period, the company’s valuation has increased 4 fold, delivering a solid return for the Angels involved.
Crowd for Angels is one of the few crowdfunding platforms that accept bitcoin. How many investors use bitcoin, and where do most of these investors originate from?
Yes, we have been accepting cryptocurrency as a form of payment for investment since early 2016. At that time, we integrated this payment option to allow foreign investors to invest in UK companies without the costs and time associated with international bank transfers. Initially, we saw a number of Australians, Chinese and mainly Asian investors utilise this form of payment. However, as bitcoin and other cryptocurrencies gained in popularity, we did see growth in European investors utilising cryptocurrency. Partly this is due to the gains they might have experienced and I believe the convenience cryptos offered. Now, we have over 14,000 members registered with a cryptocurrency wallet on our platform, with many of them in Europe.
A few years ago, the ANGEL token was released. What are the use cases for this token?
The ANGEL token was released to drive down the user acquisition cost of investors whilst rewarding stakeholders for interacting with our platform. It is hoped that when users interact and share content in the network, say an investment they had just made in a fledgeling company, that they would be rewarded with ANGEL. Crowd for Angels has then committed to buy back and burn ANGEL linked to the revenue generated from our pitches, thus creating a virtuous circle. We hope in the future, our Angels will also be able to use the ANGEL token as a method of payment towards an investment.
Crowdfunding utilises technology to allow the masses to invest small amounts into pitches, but the shares are usually held with a nominee and should you wish to sell them or give them to someone else, it is difficult. Therefore, the integration of digitalised assets should be a no brainer, because it potentially gives the control of the asset back to the investor and follows a set of rules, that can’t be broken. In a utopian world, you would allow investors to purchase, hold and trade any assets that they wish. With the blockchain, you benefit from an immutable ledger that would record these transactions, giving you efficiency and transparency. I believe we are only a stones throw away from some big changes.
Is there anything else that you would like to share about Crowd for Angels?
We are always open to ideas, a conversation can go a long way.
- Forex Market Majors Stabilize on Mixed US Retail Data
- What is Tether? A Look at the World’s Most Popular Stablecoin
- Big Money Finds Bitcoin in 2020 – Hedge Funds, Service Providers, Intelligence Firms, and High Profile Investors
- FinTech ‘Unicorn’ Revolut Shows Positive Growth in 2019 Annual Fiscal Report
- Dollar Weakness Continues in Forex Market Despite Positives